Fidelity Investments hits back at Schwab with direct retail indexing that offers two apparent benefits: it cuts the minimum by $95,000 and is already accepting assets


The Boston giant launches FidFolios today (April 1) in a hedging move that outperforms Schwab with a drastically lower barrier, though Schwab questions its usefulness in the real world

It was quick.

Fidelity Investments has already matched – and even surpassed – Schwab with its own direct indexing (DI), but with big product accolades that may reflect its great head start and critical mass. See: Charles Schwab Corp. files with the SEC to argue Rick Wurster’s push for an investor revolution in mass personalization – with 40 basis points of monetization

Rick Wurster: “We are able to lower the barriers to direct indexing.

The $11.8 trillion Boston firm went live today (April 1) with its Fidelity-managed FidFolios.

It includes direct indexing strategies – US Large Cap Index, International Index and Environmental Focus – sold at 40 basis points like those Charles Schwab & Co. launched on Monday March 28, according to a company spokeswoman.

Fidelity may have stolen a lot of thunder from Schwab by hitting the market at a low of $5,000 versus Schwab’s $100,000 low, meaning it can cater to a much wider market. lower and upper balance investors.

When asked if Schwab was working toward lower minimums, Schwab spokeswoman Mayura Hooper didn’t rule it out, but said low direct indexing minimums were overkill.

“A $5,000 minimum for direct indexing is like using a commercial KitchenAid to scramble a single egg,” she wrote via email. “We believe that a minimum that can make direct indexing more accessible to investors, while being able to harness the power of tax loss harvesting and personalization best serves investors and their financial advisors. We We are always listening to customer feedback, developing products that evolve, and passing those benefits on to our customers.”

Hooper has a good case for tax benefits, says Iraklis Kourtidis, CEO of Rowboat Advisors and creator of Wealthfront’s direct-to-email indexing system.

“A client should be in a tax bracket high enough to benefit from the harvest of tax losses, AND have external gains from other activities that have reaped losses that can offset those gains and reduce the tax liability Clients with $5,000 accounts are unlikely to fall into this category.”

Yet, adds Kourtidis, ESG benefits can apply to accounts of all sizes.

Open doors

“Thanks to technological innovations and industry developments like Schwab’s introduction of commission-free online trading, we are able to reduce the barriers to direct indexing for more investors and the advisors who serve them” , proclaimed Schwab President Rick Wurster in a statement.

Schwab is also making its new DI offering available to RIAs and Fidelity has yet to announce that.

Of course, Fidelity stole even more thunder by now being available to investors; Schwab is planning a late April launch.

Fidelity already has direct indexing economies of scale – managing $33 billion or more in higher-minimum direct indexed accounts.

Iraklis Kourtidis: With 100 times more accounts, even small ones, you need 100 times more capacity to maintain them.”

Yet its breadth can also play into the service side, Kourtidis says.

“With many small accounts, there are more things that can go wrong,” he adds. “The likelihood of an issue that will require human intervention is not proportional to the size of the account. So with 100 times more accounts, even small ones, you need 100 times the capacity to deal with them.”

Fidelity previously told industry reporters in January that it would launch FidFolios by March 30, missing just two days. This was revealed with an SEC filing, as was Schwab’s.

Leap Forward

Fidelity says it can combine “fractional share flexibility with direct indexing capabilities.” He also recently released advanced split trading. See: Fidelity offers RIAs real-time split trading despite not-so-obvious request, while rival Schwab opposes it, but just filed request to launch minimum direct indexing of $100,000 in 2022

The launch of Fidelity DI could actually be a big leap forward, said Tom O’Shea, research director for Cerulli Associates at Barron’s in January.

“I don’t want to be hyperbolic, but [the FidFolios offering] is really provocative and, I would say, revolutionary,” he says.

“Over the past two years, there has been a lot of talk about direct indexing replacing index ETFs and mutual funds. And one of the obstacles to this is the minimum account required.

“Generally, to mimic the S&P 500, you would need a portfolio of at least $250,000,” he says.

The FidFolio news came too late in the day for Rich Compson, head of retail managed accounts at Fidelity, to be on the phone, but RIABiz is due to speak to him on Monday and will add his thoughts here.


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